Bordered to the west by idyllic Gulf of Mexico beaches and to the east by the natural bounty of the Everglades, upscale Naples is one of Florida’s premier retirement destinations.

Naples’ charms made it an epicentre for the Florida property boom, where unfettered speculation and limitless credit lifted property values to the stratosphere.

Five years ago, the housing market in Naples was pegged as the country’s most overvalued, with single-family homes estimated to cost 85% more than they should. Now, one in three of those homes sits vacant, a testament to how deep the housing crisis runs in the United States and a signal that a recovery in real estate may not be in reach after all.

“I can’t see anything positive is going to happen with housing for at least a year to a year and a half,” said Jack McCabe, a housing analyst with McCabe Research & Consulting in Deerfield Beach, Fla. “Even at that point, we may just hit the bottom and bounce along it for a while.”

Just as some positive indicators in the United States sparked speculation the economic recovery is taking root, home sales and prices plummeted last month, according to data released Wednesday by the U.S. Census Bureau.

New home sales in February fell 17% to an annualized rate of 250,000 units, the slowest pace of sales activity since the agency began tracking figures in 1963. The median sale price fell 13.9% from the previous month to $202,100, the lowest value since December 2003.

The numbers surprised all but the most pessimistic analysts.

“It’s certainly a lot messier than people had hoped for,” said Brian Bethune, chief U.S. financial economist with IHS Global Insight. It’s also creating a big drag on economic growth, one that could renew last year’s worries over a possible double-dip recession.

But these kinds of setbacks are typical of economies recovering from severe recession, Mr. Bethune said. The economy took everybody on a similar ride last year.

The early stages of 2010 also witnessed a surge in upbeat sentiment, he explained. “Then it unwound, very quickly. In the space of three or four months, the tone of the economy changed dramatically. We went into the pause mode. Now, we’re kind of doing the same thing.”

Recessionary symptoms are likely to resurface in traumatized economies, he said, making it dangerous to extrapolate signs of recovery too far into the future.

It’s possible that financial institutions in the United States did just that.

Early this year, a sense that the housing market had bottomed out and was in the midst of a gradual stabilization prompted a rise in mortgage rates. “Sure enough, banks jumped the gun,” Mr. Bethune said.

Meanwhile, what little buying activity there was focussed on the resale of existing homes, still at bargain basement prices in the most distressed American markets.

New home construction has already fallen close to its “irreducible minimum,” the amount required to replace demolished units so that net supply remains flat, Mr. Bethune said. Home construction currently sits at an annualized pace of about 450,000 houses, one million short of normal levels.

“That’s one million units that have been taken off the market,” he said. Clearly, the foreclosure process, by which vacant and repossessed homes are resold, has yet to exhaust itself.

There are still about 1.5 million vacant homes in Florida, Mr. McCabe said. “Right now, distressed properties are dominating the marketplaces around America.”

And the so-called “shadow supply” of future foreclosed homes still looms, with almost half of Florida mortgage holders facing a property value that falls short of what they owe.

“A lot of people may be carried out feet first before the house is worth what they paid for it.” Many of the properties are even selling for less than what it cost to build them, Mr. McCabe explained.

As long as unemployment remains elevated in the United States, demand will be insufficient to get the market back on its feet, he said.

“Unless you increase demand, you’re not going to fill up these vacant units and get them off the market.”

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